US economy slows more than expected in Q1 2024

The US economy’s growth rate slowed more than expected during the first quarter of the year, reflecting the impact of rate hikes on the real economy during the monetary tightening cycle.

According to data from the Bureau of Economic Analysis released today, April 25, the US real gross domestic product (GDP) grew by 1.6% on an annual basis in Q1 2024, down from 3.4% in the last quarter of 2023.

This is against expectations that the GDP growth pace would slow to 2.4% during the same period. Data indicated that the increase achieved in real GDP during the last quarter was due to higher consumer spending, fixed investment in housing, and public spending at the state and local government levels.

The GDP measured at current prices rose by 4.8% year-on-year (YoY) in Q1 2024, after growing by 5.1% in the previous quarter.

As for the Federal Reserve's preferred measure of inflation, the personal consumption expenditures price index rose by 3.4%, recording the highest pace of increase in a year, compared to its increase of 1.8% in Q4 2023.

The basic index - which excludes volatile food and energy components - rose by 3.7% after growing by 2% in the previous quarter.

Personal spending, the main driver of the economy's growth, climbed 2.5% in Q1 2024, below expectations of 3%.

The US Department of Commerce said the growth slowdown primarily reflected slower growth in consumer spending, exports, as well as state and local government spending. It also showed a decline in federal government spending.

The department added that US consumers are still spending heavily on healthcare, insurance and other services. However, the slowdown in spending on goods such as cars and gasoline, coupled with a decline in corporate investments in inventory, negatively affected overall growth.

Investors reduced their bets on a rate cut following the release of such data. They currently expect the Fed to make the first cut decision in November, not September.